Glimmers of Optimism Breaking Through the Outbreak

Sheaff Brock Money Management | clouds with sunlight and blue sky shimmering through | glimmers of hope in stock market news

Glimmers of Optimism Breaking Through the Outbreak

With bad news abounding—confirmed virus cases, virus deaths, unemployment, and falling corporate earnings—how could stock market news possibly include an upswing?

“Markets don’t need good news to advance,” explains Sheaff Brock Managing Director Dave Gilreath, “only an inkling of better news.” Stock market prices are predictive, Gilreath adds, often moving up on anticipation of better news. On one very recent day, for example, cruise line, hotel, casino, airline, and restaurant stocks gained more than 10%, flying in the face, of course, of all sorts of terrible news surrounding travel-related industries. Back in 2009, Gilreath recalls, after Congress approved the TARP bill and relieved accounting pressures on banks, the stock market turned upward quickly. Today (with the banking industry in a very strong position), the government is in the process of providing an unprecedented level of help to business owners and individuals. Policymakers’ statements that they are willing to do “whatever it takes” offer more than just an inkling of optimism, even as stock market news seems to have already included tidings of a rather dramatic multiple-day climb.

So, have we reached the bottom of the market? Needless to say, there’s no definitive answer, but volatility levels are providing a glimmer of optimism. In the past, Gilreath recalls, a situation in which the S&P 500 has drifted lower while volatility has simultaneously decreased has signaled a market bottom.

Meanwhile, does it make sense to sell out of a portfolio to reduce risk, particularly since several companies have rallied substantially? Brian Wesbury, Chief Economist of First Trust Portfolio, puts it this way: “This market has already priced in most of the decline.” As data lends certainty, stock market news will report a market upturn before the coronovirus cases peak, Wesbury predicted even before the recent upturn.

The experience of the past few months should serve to reinforce the lesson that timing the market is often a fool’s errand, Gilreath reminds investors. Missing even a few days in the market can wreak havoc with long term returns, because some of the biggest “up days” have been clustered around big sell-offs.

Sheaff Brock reviews chart of S&P 500 Compound Annual Growth Rate from Strategas Research Partners

“U.S. stocks rallied hard on Thursday, as investors notice both that all forms of stimulus are momentarily holding over the struggling economy and that there is some indication the coronavirus may slow soon,” Jacob Sonenshine wrote in The Street.

Anticipation of better news appears to have once more served as a catalyst for the stock market, offering glimmers of optimism breaking through the outbreak.

 

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